China is set to promote reverse mortgages nationwide as an alternative to traditional pension products.
The decision to go national was made despite the fact that results have been lacklustre for the first reverse mortgage pilot scheme, reports Shanghai Securities News. Very few insurers offer the scheme. The enthusiasm of potential customers for reverse mortgages is also lower than expected.
The pilot reverse mortgage scheme started on 1 July 2014 in Beijing, Shanghai, Guangzhou and Wuhan, targeted at those aged over 60 who have full and legal rights to their residential property. Originally set to run till July 2016, the pilot scheme was extended to 30 June 2018 and its scope was expanded to municipalities, provincial capitals, cities with independent planning status, as well as prefecture level cities in Jiangsu, Zhejiang, Shandong and Guangdong.
There are many reasons for the cool response to reverse mortgages.
From the perspective of insurance companies, the design of reverse mortgages is complex and the risk dispersion mechanism is imperfect. The scheme also offers insurers little profit.
Greater resistance to reverse mortgages comes from the traditional beliefs of the elderly who hold on to the concept of "having children to look after one in old age".
In addition, the legal system related to reverse mortgages and legal protection for insurance entities is insufficient, thus increasing legal risks.
However, three factors will support the rise of reverse mortgages. First, demographic changes mean changes in family intergenerational relationships and empty nests; second, the level of old age security is limited in China and there is a need for pension channels to be diversified; third, the proportion of self-owned housing is large, and the value of housing assets is rising.
In order to stimulate market demand for reverse mortgages, the industry has called for policy support as well as improvement to laws and regulations.
There are also suggestions to expand the scope of reverse mortgages from residential property to other types of real estate, such as commercial real estate, shared property housing, rural household contracted land use rights, etc.